Negotiating settlements is a process to offer your creditors a reduced sum to pay off your debt, rather than the full amount you owe. If the creditor agrees to your offer, it should take no further action. This is called a ‘full and final settlement offer’.
You may be able to do this because you have come into some money or have some savings you can use. Sometimes a friend or relative offers to put forward a lump sum to help you pay off the creditors. If your circumstances are unlikely to change for the better in the future, you can explain why this is. It is also very important that you explain to the creditors that the money will not be available forever and the friend or relative will not make the payments unless the offer is accepted.
Making An Offer
- It is very important to make sure your creditor accepts your full and final settlement offer in writing. Make sure you keep a copy in case there is a dispute. This could happen years later and you may need the letter as proof.
- Never send a lump-sum payment before the offer is accepted.
- A friend or relative may be able to give you the money and make the payment. It helps your agreement to be more legally binding if the creditor accepts the money from a third party.
- If you are settling a debt that is large or particularly important, you could have a formal agreement drawn up by a solicitor and signed by you and the creditor. This is not normally necessary, though.
- Make sure you keep copies of any letters you send and receive.
How To Work Out Offers
The Financial Conduct Authority (FCA) has issued rules and guidance in its Consumer Credit sourcebook (CONC) about settlement offers.
The FCA says:
” If a firm accepts a customer’s offer to settle a debt, it must communicate formally and unequivocally that the offer accompanied by the relevant payment has been accepted as settlement of the customer’s liability.” – Consumer Credit sourcebook (CONC) 7.14.14.
You may have a lump sum that you need to divide up amongst several creditors. The usual way of doing this is to make ‘pro-rata’ offers.
This means that each creditor gets a fair share of the money you have available. The creditor you owe the most to will get the biggest share of the money and the creditor you owe the least to will get the smallest share.
Communicating Your Offer
Send the offers to all your creditors along with a table setting out how you have worked the offers out. It is helpful if creditors can see that they are all receiving an offer of a pro-rata settlement; then they know they are all being treated fairly.
If some of the creditors refuse, then write to them again and ask them to reconsider. Tell them if any of your other creditors have accepted the offer and explain your circumstances again. If your creditors still refuse, seek professional advice from debt charities or experienced debt management professionals like ourselves to see what other options you may have.
Your Credit Reference File
After the settlement has been agreed and made, make sure the creditor agrees in writing to change your credit reference file details to show that the balance has been paid and the date this happened.
- You can check this has been done by asking the credit reference agencies for a copy of your credit file.
- You can expect to see your account showing as having been closed.
- Your balance should change to ‘zero’ to show that there is no more money due.
- Credit reference agencies may mark the account with a ‘P flag’ for ‘partial settlement’ which means that you have made a part-payment and not paid the balance in full.
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We work closely with several local debt charities including adviceni.com and ruralsupport.org.uk providing training and support. Linda Wilson, our Voluntary Sector Services Manager works closely to ensure that our services are accessible to those most in need.